The On-and-Off Connection Between Political and Economic Progress

by Albert O. Hirschman
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Title:
The On-and-Off Connection Between Political and Economic Progress
Author:
Albert O. Hirschman
Year: 
1994
Publication: 
The American Economic Review
Volume: 
84
Issue: 
2
Start Page: 
343
End Page: 
348
Publisher: 
Language: 
English
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Abstract:

If a country's movement toward democ- racy is viewed as the essence of political progress and its advance toward a just and prosperous society as economic progress, then our session's subject is, simply and bluntly, the relation between economic and political progress. This relation has often been visualized in a very few alternative, functional forms such as the following:

(1)
"All good things go together7'-economic progress begets political progress as well as vice versa: the two go harmo- niously hand in hand.
(2)
Next, there is the opposite pessimistic view that "everything has a cost" or "there is no such thing as a free lunch" -meaning in the present context that economic progress necessarily exacts a cost in the political domain or vice versa: political advances are bound to jeopar- dize economic progress.
(3)
A third, intermediate, case might be labeled "per aspera ad astra": during a first period, economic progress goes it alone while political progress must be held back or is even put into reverse gear, sacrificed for the sake of the grow- ing economy; during a second period, a reward is reaped for the temporary sac- rifice as political progress is catching up. The opposite process, with economic progress being sacrificed temporarily for the sake of political advance, has been less frequently articulated, but also has a realistic ring. Here the two variables evolve in a slightly more complex pat- tern, as in Simon Kuznets's (1955) proposition about the curvilinear rela- tion between economic growth and in-

*Institute for Advanced Study, Princeton, NJ 08540.

equality, or as in my own models of unbalanced growth and of "sailing against the wind" (Hirschman, 1992 pp. 26-33).

I. From Economics to Politics: The Ratchet Effect and Related Metaphors

In attempting to establish the true nature of the connection between political and eco- nomic progress, these various patterns have been found to prevail in some countries for some periods, but it is now fairly clear that none can claim to be predominant. This is convincingly shown in the recent article by Adam Przeworski and Fernando Limongi (1993) on "Political Regimes and Economic Growth." Their careful and comprehensive review of the literature is in the end thor- oughly and discouragingly inconclusive. Un- der the circumstances, there is an almost cruelly mocking ring to the article's last sentence: "Clearly, the impact of political regimes on growth is wide open for reflec- tion and research."

One reaction to this difficulty in establish- ing a solid connection between economic and political progress is to revert to the idea that economics and politics are two wholly separate domains. As Stephan Haggard and Robert Kaufman (1992) noted, political sci- entists analyzed the recent wave of democ- ratization in Latin America and Asia largely in such autonomous terms. This may well reflect disappointment over certain once popular, but by now discarded analyses of political events in the 1960's and 1970's which represented a last-ditch effort to un- derstand those events-in particular, the turn to authoritarianism during that period -in terms of "underlying" economic forces.

However, this reversion to proclaiming the autonomy of politics and economics may be an overreaction. The two domains do ex- hibit many linkages that are quite intimate

343

at one point, only to evaporate later. The trouble is that researchers have been unwill- ing-or that the model builders have been unable-to think in terms of on-and-off connections, or of couplings and uncouplings, or of alternations between interdependence and autonomy. I would like to review here some already available ways of thinking in such terms. For this purpose it pays to scru- tinize ordinary language as well as the world of myth. As on-and-off connections have been experienced time and again, myth, lan- guage, and occasionally social thought have come up with a series of stories and expres- sions that gesture effectively toward what is to be understood.

Let me first recall a metaphor from hand tools that entered the language of economics over 40 years ago. I refer to the "ratchet effect." James Duesenberry (1949) created this term to describe the behavior of consumption in relation to income during the business cycle: consumption is a rising function of income as long as income in- creases but will resist following income on

w

the downward path, as in a recession people will dig into their savings to maintain their accustomed standard of living, at least for a time. Here is precisely the idea of uncoupling (or unyoking or unhinging), that is, of a functional relationship which ceases to operate at some point.

Some time ago I came upon a similar situation in a growth context. During the 1980's, when indexes of economic perfor- mance leveled off or declined in some Latin American countries under the impact of the debt crisis, important social indicators, such as infant mortality, illiteracy, and the extent of birth control continued showing improve- ment (Hirschman, 1987 pp. 11-12). Such improvements had occurred earlier in response to rising incomes, but they had ap- parently assumed "a life of their own." At some point they were no longer narrowly tied to the "vagaries" of income. To the extent that these social advances were due to learning processes they became irreversible and started diffusion processes of their own. Such processes are essential to understanding growth and development.

That a behavior which is originally resisted and acquired only under the influ- ence of extrinsic (positive or negative) in- centives can become irreversible is also well rendered by the expression that the behav- ior eventually becomes "second-nature." A good deal of learning consists in fact in this mysterious process through which a behav- ior acquired under duress (because it goes against "first-nature") becomes second-nature. It has not been widely realized that this process-the replacement of extrinsic incentives toward a certain behavior by in- trinsic ones-is the exact opposite of the "crowding out" of intrinsic motivation as a result of the introduction of extrinsic (usu- ally monetary) rewards.' The becoming-second-nature process appears to have aroused less interest than the crowding-out one, perhaps because it is auspicious, rather than worrisome and dismal.

Returning from ordinary language to so- cial science, the term "disjunction" has been used by Daniel Bell (1976) to describe how the cultural and artistic life of modern soci- eties no longer reflects the evolution of soci- ety and economy in general. The term was meant to convey dissent from those socio- logical thinkers, from Karl Marx to Emile Durkheim and Talcott Parsons, who culti- vated a vision of society as an integrated whole. In the Marxian scheme, for example, culture, the "superstructure," is supposed to correspond somehow to economy and society (the "infrastructure"). So, from the point of view of that scheme, when culture takes on a "life of its own," it seems fair enough to speak of disjunction: something that was supposed to be controlled by some- thing else, acquires autonomy. Curiously, in spite of his solid non-Marxist convictions, Bell saw this autonomy as something vaguely abnormal and threatening.

This negative interpretation comes to the fore in a fairy tale or myth that reflects once

'AS famously described by Richard Titmuss (1970), extensively surveyed by Robert Lane (1991), and recently reanalyzed by Bruno Frey (1992).

VOL. 84 NO. 2 THE ROLE OF DEMOCRACY

again the notion of uncoupling. It is the story of the sorcerer's apprentice who, un- like the master, turns out to be unable to control the forces he has unleashed. Social processes of the sorcerer's apprentice type are not hard to find. In the United States, for example, the Prohibition Statute of 1919/1920 gave rise to the emergence of "Big Crime" syndicates which organized il- legal networks of production and distribu- tion of alcoholic beverages. But the repeal of Prohibition in the 1930's did not cause Big Crime to disappear (Thomas Schelling, 1984 p. 178).

In similar ways, the processes previously described as the "ratchet effect" and "tak- ing on a life of its own" have potential for both good and evil. Only when a behavior is said to become "second-nature" is it nor- mally assumed that one is in the presence of genuine learning. Even this process can sometimes be given a negative interpreta- tion by presenting it as the outcome of "brainwashing."

Some important connections between economic and political progress or decline are best described in terms of the concepts just surveyed, particularly when the initial causation runs from economics to politics, as in the following two well-known examples.

The vigorous development of the Spanish economy during the three postwar decades contributed in various ways to undermining the authoritarian regime established after the end of the Civil War by Francisco Franco. After the death of the long-time dictator in 1975, a fairly smooth transition to democracy got underway. But just then the international oil crisis temporarily halted economic expansion and caused large-scale unemployment to appear. Fortunately, the new democratic institutions were able to acquire a "life of their own" and became "second-nature" to Spanish society (Juan Linz and Alfred Stepan, 1989 pp. 43-46).

The opposite case is tragically illustrated by the history of Germany in the earlier part of this century. Here it was the rise of Adolf Hitler that was powerfully assisted by economic forces-the Great Depression and the ensuing mass unemployment. Then, once in power in one of the world's most technically and culturally advanced countries, the Nazi regime went on its madly "autonomous" course to suppress democ- racy, unleash war, and commit genocide.

11. From Political to Economic Progress: Toward a Repertoire of History's Tricks

In exploring connections between economics and politics, social scientists have ordinarily given preferential attention to se- quences where economic events clearly in- fluence and shape the realm of politics. As just illustrated, politics then has a way of taking over, it becomes unhinged from eco- nomics in line with the "on-and-off scheme. Examples for the opposite sequence, where politics would be the prime mover, do not spring to mind as readily, but it may be helpful to proceed by analogy with the Spanish and German cases. This involves examining sequences of events starting with some important advance toward democracy and then looking at the economic conse- quences. Here a basic difference appears between economic and political change: the latter is more likely to be discontinuous than the former. Advances toward democ- racy have typically occurred not as a result of some gradual "democratic upswing," but because an oppressive regime has been overthrown or because a voting-reform law broadening the franchise has been adopted.

It is because such democratic advances typically happen as one-time events that much of the analysis of the economic conse- quences of political change ends up as exer- cises in comparative statics. One compares the economic performance of democratic and nondemocratic countries and hopes to be able to conclude that the former do better in the economic realm as well. An early example of this way of disposing of the problem is Adam Smith's well-known dic- tum: "Little else is required to carry a state to the highest degree of opulence from the lowest barbarism than peace, easy taxes, and a tolerable administration of justice" (Dugald Stewart, 1858 p. 68).

Two remarks are in order. Such a con- struction assumes that all that is needed for economic growth to happen is some set of political prerequisites such as peace and secure property rights. With that set in place, it is the economy that is expected to acquire "a life of its own," with no need for further interaction between economic and political forces. But such interaction obvi- ously exists on a continuing basis and needs to be understood. Secondly, the usefulness of the propositions about the political pre- requisites of economic growth is doubtful. The exhortation to countries lacking "de- mocracy" or "peace" to get their act to- gether and procure such blessings is not notably helpful. If a country is unable to end its civil war to stop the killing, is it likely to do so to achieve a better rate of growth?

I do not wish to be wholly negative. Com- parative statics does have its uses. An example is Amartya Sen's (1983, 1994) point that a country like India with a reasonably free press, able and willing to denounce intolera- ble conditions and abuses, has a better chance to avoid famines than an authoritar- ian country like China. If nothing else, such a finding packs a considerable hortatory punch.

Yet, the main task of political economy remains to provide a better understanding of the ongoing interactions between politics and economics. Not to attempt the construction of building blocks here is in fact an evasion of a real opportunity, in view of the very characteristics of a pluralist market society. As this society creates new wealth, it also generates problems of emerging in- equality and regional or sectoral decline that are often unjust or felt as such. Hence there arise, in the political domain, demands for reform and political action. In turn, these reforms and actions have eco- nomic consequences.

Political economists have not come for- ward with many generalizations or conjec- tures in this field, perhaps for good reasons. What indeed can one say about the likely consequences of democratic and social ad- vances for economic growth? Without de- tailed knowledge about the nature of the advance and the surrounding historical cir- cumstances it would seem foolish to hazard an answer. A democratic advance can either inaugurate or put an end to an era of politi- cal instability, and thus it can lead to either economic decline or growth.

Fortunately, the historical record raises doubts about such total indeterminacy, at least for the countries with the most advanced economies in Western Europe and North America. These countries are also those that have enacted, discontinuously, a series of political and social reforms over the last two centuries. Does it then follow that these "democratic" advances have had on the whole a stabilizing effect and have improved the "investment climate" so that economic growth could gather strength?

This is a rather surprising conjecture, in part because it directly contradicts Alexis de Tocqueville's famous proposition that, in France, attempts at reform prior to 1789 and in the earliest phase of the Revolution had fatally destabilizing effects on the an- cien rCgime. This was surely a remarkable insight for the events Tocqueville undertook to analyze. But, just because the French Revolution had aroused widespread expec- tations that its history of progressive radical- ization is apt to repeat itself, subsequent reforms played often a different, self-limit- ing and stabilizing role. I now wish to ad- vance one possible explanation, building on what I call the "jeopardy thesis" in my recent (1991) book, The Rhetoric of Reaction. By that term I understand the argu- ment that a proposed reform will endanger previous accomplishments, an argument that played a central role in the history of oppo- sition to reform in the 19th century.

After the French Revolution, democratic and social advances were fought tooth and nail by the now alerted and highly articulate "reactionary" forces: every advance was de- nounced as though it were in fact synony- mous with revolution and would mean the annulment of previous advances toward "liberty." But then, with a reform having been adopted in spite of that strenuous opposition, it often turned out, to much surprise, that the reform, that famous "leap in the dark," could be lived with. The result was enormous relief among the owners of capital, political stabilization, and a period of sustained economic growth and prosper- ity.

This interpretation yields a political busi- ness cycle that would be determined by each wave of reform. Concern and alarm over reform proposals and over the connected agitation brings a decline in investment ac- tivity, which then rebounds once the reform has been passed and is being assimilated. The more persuasive the warnings about the disastrous consequences of reform, the more vigorous will be the actual upswing after the reform is passed and the warnings are disproved.

This sequence is suggested by the story of how the hotly contested Reform Laws of 1832 and 1867 in England had a peaceful and prosperous aftermath. It should be in- teresting to examine whether this somewhat paradoxical pattern can be found to hold for similar episodes in other countries. But economists familiar with rational-expecta- tion models should not be overly surprised if prophecies of destabilization B la Toc- queville turn out to be self-refuting, rather than self-fulfilling.

Of course, I would never want to rely on the mechanism I have sketched. It would be folly to encourage "reactionaries" to make outrageous claims about the evil consequences of a proposed reform, with the cunning thought of eliciting feelings of re- lief, and hence economic upswing, once re- form is adopted and proved not to be all that disastrous. Even if this conjunction of events has "worked" a few times in the past, one cannot have any confidence that it will do so again. Samuel Johnson once is- sued a fine warning against the intellectual pride that would lead one to act on the basis of such putative insights. In his philo- sophical novel Rasselas, he wrote: "Man cannot so far know the connexion of causes and events, as that he may venture to do wrong in order to do right" (1958 p. 576).

What, then, is the point of my story? It is to affirm once again that political and eco- nomic progress are not tied together in any easy, straightforward, "functional" way. There are the various on-and-off connections of the first part of this paper. Then there are stories, intricate and often nonre- peatable, like the one I have just told, that look more like tricks history has up its sleeve than like social-scientific regularities, not to speak of laws. To make an inventory, to survey history's repertoire of such tricks, seems to me an appropriately modest way of trying to make progress with this difficult topic.

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